What it means
The OECD was formed in 1961 as the successor to an organisation created to coordinate the Marshall Plan, the American programme that helped rebuild Europe after the Second World War. It has since grown into a group of mostly high-income countries, with partnerships reaching many others.
Its stated aim is to promote policies that improve economic and social well-being. Much of its work is research and statistics.
The OECD publishes regular economic forecasts, comparisons of education, employment, health and productivity, and detailed tax data. Governments, banks and businesses use these figures to benchmark themselves against other countries.
For finance professionals, the most important outputs are its tax standards. The Transfer Pricing Guidelines explain how related companies in different countries should price dealings between themselves, and the Common Reporting Standard sets out how tax authorities exchange information about financial accounts held abroad.
Its work on base erosion and profit shifting, known as BEPS, led to a global minimum tax for large multinational groups. The OECD also issues principles on corporate governance, anti-bribery and responsible business conduct.
These are recommendations, so each country decides how and whether to apply them. In practice, however, governments often adopt them into national law, and tax authorities treat them as the reference point in disputes.
A manager at a company with overseas operations will meet OECD ideas in transfer pricing documentation, country-by-country reporting and tax planning. It helps to remember that the body has no power to enforce its rules directly.
Its influence comes from agreement among member governments and the weight of its research.
In practice
Real-world examples.
Example
A manufacturing group sells components from its US factory to its subsidiary in another country. The tax team follows OECD transfer pricing guidelines to set a price that matches what unrelated companies would pay. They keep a file of comparable deals to support the price if challenged.
Example
A bank in a small country collects data on account holders who live abroad and sends it to their home tax authorities under the Common Reporting Standard. The compliance team trains staff on the new reporting forms. Reports are filed once a year, and the bank's internal audit team checks a sample of them for accuracy before the deadline.
Example
A government economist uses OECD data to compare her country's unemployment and productivity with similar economies. She uses the findings in a briefing paper to the finance minister. The paper helps shape the following year's budget priorities, and the minister's team cites the same figures when it explains the choices to parliament.
Case study
Seen in the real world.
Meridian Software is a fictional company with offices in six countries, used here to illustrate OECD influence. In this illustrative story, the group licensed its technology from a subsidiary in a low-tax country and paid that subsidiary $12,000,000 a year. A tax authority questioned whether the fee matched what independent firms would pay.
Meridian's advisers prepared a report based on the OECD Transfer Pricing Guidelines, comparing the fee with 15 similar licences. The comparison showed that the charge was within a reasonable range, though the tax authority required a small adjustment of $1,500,000. Meridian then reviewed all of its intragroup charges to bring them in line with the same approach.
The case also changed how Meridian runs its tax function. The finance director now holds an annual review in which every cross-border charge is compared with the OECD approach, and the results are filed with the group accounts so that any future enquiry can be answered quickly. Two of the six countries have since asked for the same documentation, which the team can now supply within a week instead of a month.
Watch out
Common mistakes.
- Thinking the OECD can make binding laws. It issues recommendations and standards, and countries decide whether to adopt them.
- Confusing the OECD with the World Bank or the International Monetary Fund. Those bodies lend money, while the OECD focuses on research, standards and policy discussion.
- Assuming OECD members are only European. Members come from several continents, including the Americas and Asia-Pacific.
Questions
People also ask.
What does the OECD do for businesses?
It sets widely used standards on taxation, governance and responsible conduct that shape how companies report and trade across borders, and it publishes data that managers use for benchmarking and market research.
What is BEPS?
It stands for base erosion and profit shifting, which describes tax planning that moves profit to places with little real activity.
Where is the OECD based?
Its headquarters are in Paris, France, and its staff there support committees made up of officials from member governments who negotiate the standards.
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